House Republicans have passed President Donald Trump’s comprehensive tax and spending bill, which significantly alters the federal deduction cap for state and local taxes (SALT). Historically, the SALT deduction, encompassing state and local income taxes and property taxes, was unlimited until capped at $10,000 in 2017. This cap disproportionately affected taxpayers in high-tax states. Now, the newly approved legislation raises the SALT deduction limit to $40,000 starting in 2025, phasing out for incomes exceeding $500,000, with a 1% annual increase until 2029, before reverting to the $10,000 cap in 2030.
The bill’s expansion of the SALT deduction is notably larger than previous proposals, as assessed by the Committee for a Responsible Federal Budget. This presents an opportunity for high-income taxpayers to benefit more significantly, although those in the 37% income tax bracket will see reduced benefits from other itemized deductions.
For tax filers, the choice remains between the standard deduction or itemizing deductions, which include the capped SALT deduction. The Tax Cuts and Jobs Act of 2018 doubled the standard deduction, which is indexed for inflation — $15,000 for single filers and $30,000 for married couples in 2025. Trump’s legislation proposes increasing these to $15,750 and $31,500 respectively.
The IRS data indicates that around 90% of filers opt for the standard deduction, largely bypassing itemized tax breaks. However, in high-tax states like Connecticut, New York, New Jersey, California, and Massachusetts, the average SALT deduction approaches the $10,000 cap, affecting many taxpayers in these regions.
The Tax Foundation’s analysis highlights that raising the SALT cap primarily aids higher earners, providing a tax advantage to those with substantial state and local tax liabilities. Additionally, Trump’s bill retains a workaround for pass-through businesses, enabling them to circumvent the $10,000 cap, unlike the previous House bill that aimed to restrict this for certain professionals.
The legislation’s SALT provisions have faced criticism for maintaining advantages for wealthier taxpayers while allowing certain loopholes to persist, as noted by experts in the field. This underscores the need for a nuanced understanding of the bill’s impacts on diverse taxpayer demographics and the broader fiscal landscape.
